As more begin to see the benefits of low-cost and efficient exchange traded funds, advisor and investor adoption of the investment vehicle is rising, notably among the new breed of alternative or smart-beta index-based products that intend to enhance returns or diminish market risks.
In a recent survey of financial advisors on the ETF Trends Virtual Summit, an online virtual conference experience, more advisors are adding ETF products into their portfolios mix to capture broad market moves.
Asset flows also show a growing trend toward passive index-based investments, with more money finding its way into ETFs while mutual funds continue to bleed assets. According to Morningstar data, investors pulled $207.3 billion from actively managed mutual funds and moved $413.8 billion into passively managed funds. [ETFs, Passive Strategies Continue to Thump Active]
On the Annual ETF Pundits panel with Ben Johnson, Director of Global ETF Research at Morningstar and Matt Hougan, CEO of ETF.com, Tom Lydon looked at the ongoing ETF growth and the new products that are hitting the markets. Specifically, the pundits went over the rise of smart-beta or alternative index-based ETF strategies that that allocate toward specific investment attributes, such as low-volatility that favors less risky assets, as opposed to traditional market-cap-weighted indices that tilt toward the largest company stocks. [Quality Matters When Selecting Dividend ETF Exposure ]
The panel on Enhanced ETF Strategies with Enhanced Indexing Methodologies dived into the inner workings of the new group of factor or multi-factor ETFs that implement actively managed investment styles in a passive index-based ETF strategy. On the ETF Trends Virtual Summit, more advisors indicated they are looking at smart-beta ETF strategies. While the majority of advisors believe they will increase smart-beta ETFs into their portfolios, a significant chunk of respondents want more information, which suggests that the ETF industry still requires greater effort in educating investors about the investment vehicle and various strategies.
Among the more popular strategies to recently pop up, currency-hedged international stock ETFs gained traction among investors last year as the U.S. dollar strengthened. The majority of advisors also anticipate the greenback to continue appreciating against foreign currencies, especially as the Federal Reserve is more likely to hike rates while other central banks enact looser monetary policies.
ETFs are becoming a greater part of investors’ portfolios but aren’t immune to the recent stock market volatility. Rising interest rates, falling oil prices and slower growth from emerging market countries are all weighing on the stock market early in 2016.
Financial advisors who missed out on the live ETF Trends Virtual Conference can still hear from ETF experts on specific investment strategies addressed at tackling market headwinds and identifying specific investment opportunities in this new year. The complimentary virtual conference is available to financial advisors on demand. Registration is easy and can be attended from your home or place of work.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.